China and Japan reduce their holdings of US Treasuries

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The sale of US Treasury bonds is increasing worldwide. The amount has already exceeded $200 billion this year, and the current US Treasury holdings of major countries are close to 2018 levels. For example, net sales from Japan and China, the two largest holders, are to US$69.7 billion and US$98.7 billion respectively this year. South Korea’s is about US$18.9 billion.

According to the US Treasury Department, holdings of major countries stood at $3.9427 billion at the end of July, the lowest since November 2018. The figure was $3.9026 billion at the end of June this year and has been declining of 217.8 billion dollars for the first seven months of this year.

The sale of the three Asian countries has to do with the intervention in the foreign exchange market. This year, the values ​​of the Japanese, Chinese and South Korean currencies have fallen by 25%, 10% and 17% against the US dollar and the Chinese and South Korean governments have intervened by selling the bonds. The Bank of Korea recently announced that its US dollar selling intervention amounted to US$8.311 billion in the first quarter.

The Bank of Japan has not intervened in the foreign exchange market since 1998. Japan’s sell-off from January to July this year was due to falling US Treasury yields as hedging costs rose. However, the bank could change its policy with the yen-dollar exchange rate about to exceed 145 yen per US dollar. Finance Minister Shunichi Suzuki expressed concern on Sept. 14, saying all steps can be taken in the interests of market stability and that the government will intervene immediately and continuously if it decides to intervene.

Rising Treasury yields are another reason for the sell-off. Current U.S. interest rate policy is pushing yields higher and the Fed’s quantitative tightening is accelerating the rise by causing the Fed to shift bonds to the market where inflows of Treasuries from several countries are increasing at the same time.

China has sold the bonds since 2018, when its trade disputes with the United States began. At the end of July this year, China’s US Treasuries totaled $970 billion, the lowest level since May 2010. Experts say it’s about diversifying foreign exchange reserves rather than fighting back against states States or to avoid possible financial sanctions with its ally. Russia under Western sanctions.

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